There is no honor among thieves, and no patriotism among American corporate executives doing business with China. That's the clear subtext of a recent letter sent to Congress opposing HR 2378, a long-overdue bill that would finally crack down on one of the biggest obstacles to a sustained American economic recovery — Chinese currency manipulation.
China's grossly undervalued yuan gives Chinese exporters a huge economic advantage, allowing them to price Chinese-made goods far lower than those made in the United States. At the same time, the yuan's undervaluation imposes the equivalent of a heavy tax on U.S. exports to China.
This currency manipulation, in concert with China's massive export subsidies, has resulted in chronic U.S. trade deficits, a severe weakening of our manufacturing base and the loss of as many as 20 million American jobs, even as China's economy has boomed.
In a system of truly free trade and floating exchange rates, America's massive trade deficit with China could not persist. As the deficit rose, the dollar would fall relative to the yuan. U.S. exports to China would rise, Chinese imports would fall and trade would rebalance. However, a manipulative and mercantilist China subverts this floating exchange rate adjustment even as it systematically destroys a global free-trade framework based on the promise of mutual gain.
When Barack Obama was a presidential candidate, he repeatedly promised to crack down on unfair Chinese trade practices, particularly when he was campaigning in key industrial swing states such as Illinois, Michigan, Ohio and Pennsylvania. Once in office, however, President Obama hasn't delivered on those promises. His Treasury Department has repeatedly refused to brand China a currency manipulator — a move that would allow the U.S. to impose countervailing duties to eliminate one of China's most important mercantilist edges.
Despite repeated promises, China also has refused to allow any meaningful appreciation of the yuan. That's why Congress is considering legislation that would impose duties on some Chinese imports. This is an important step, and Congress should not be swayed by the letter opposing action, which was signed by 30 U.S. business groups with an interest in maintaining the status quo.
The letter's signatories include agricultural groups such as the American Soybean Assn. and the American Meat Institute, which have signed the letter because they fear retaliatory tariffs. Other signers include merchandisers such as the National Retail Federation, which fear they would lose business if the prices of Chinese goods were to rise sharply. A third group is composed of manufacturers who have moved production to China and don't want their offshore advantages diminished.
Though some of these fears may be justified, they don't justify lobbying actions that materially harm the broader interests of the United States and its workers as the country tries to come to grips with one of the worst economic downturns in its history. What these groups fail to understand, and what many Americans have failed to grasp, is this: The flood of artificially cheap Chinese goods putting America out of business has merely been a down payment on this country's present and future unemployment, and higher unemployment means less purchasing power for consumers and less business for these American retailers over the longer run.
Over the last decade, as more and more American jobs and factories have moved to China, so-called American organizations such as the Business Roundtable have been transformed from staunch critics of Chinese mercantilism to meek apologists for China's anti-free trade policies. These organizations are the very essence of the dictum often attributed to Vladimir Lenin that a capitalist will happily sell the rope that will be used to hang him.
Take the U.S. Chamber of Commerce and its various counterparts in China. The groups were signatories to the letter lobbying against congressional attempts to force China to play fair. In addition, the American Chamber of Commerce in Shanghai has lobbied against key provisions in a proposed Chinese law that would have expanded protections for Chinese workers, and thereby given American workers a better chance to compete.
What all of these American business groups and corporate executives now doing business with China fail to understand is this: When jobs move to China, Americans are damaged. These days, you don't have to look far to see the victims.
Peter Navarro is a business professor at UC Irvine and the coauthor of "Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington." peternavarro.com